UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	September 30, 2023

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______ to ______

Commission file number 001-36174

NMI Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware				45-4914248
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
2100 Powell Street	Emeryville	,	CA	94608
(Address of principal executive offices)				(Zip Code)

(855) 530-6642

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01	NMIH	Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on October 30, 2023 was 81,080,694 shares.

1

TABLE OF CONTENTS

Cautionary Note Regarding Forward-Looking Statements		3
PART I		5
Item 1.	Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	53
PART II		54
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
Signatures		59

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995. Any statements about our expectations, outlook, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believe," "can," "could," "may," "predict," "assume," "potential," "should," "will," "estimate," "perceive," "plan," "project," "continuing," "ongoing," "expect," "intend" or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. All forward-looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements that should be read in conjunction with the other cautionary statements that are included elsewhere in this report. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements including, but not limited to:

•changes in general economic, market and political conditions and policies (including rising interest rates and inflation) and investment results or other conditions that affect the U.S. housing market or the U.S. markets for home mortgages, mortgage insurance, reinsurance and credit risk transfer markets, including the risk related to geopolitical instability, inflation, an economic downturn (including any decline in home prices) or recession, and their impacts on our business, operations and personnel;

•changes in the charters, business practices, policy, pricing or priorities of Fannie Mae and Freddie Mac (collectively, the GSEs), which may include decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement generally, or with first time homebuyers or on very high loan-to-value (LTV) mortgages; or changes in the direction of housing policy objectives of the Federal Housing Finance Agency (FHFA), such as the FHFA's priority to increase the accessibility to and affordability of homeownership for low-and-moderate income borrowers and underrepresented communities;

•our ability to remain an eligible mortgage insurer under the private mortgage insurer eligibility requirements (PMIERs) and other requirements imposed by the GSEs, which they may change at any time;

•retention of our existing certificates of authority in each state and the District of Columbia (D.C.) and our ability to remain a mortgage insurer in good standing in each state and D.C.;

•our future profitability, liquidity and capital resources;

•actions of existing competitors, including other private mortgage insurers and government mortgage insurers such as the Federal Housing Administration, the U.S. Department of Agriculture's Rural Housing Service and the U.S. Department of Veterans Affairs (collectively, government MIs), and potential market entry by new competitors or consolidation of existing competitors;

•adoption of new or changes to existing laws, rules and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by regulators, including the implementation of the final rules defining and/or concerning "Qualified Mortgage" and "Qualified Residential Mortgage";

•U.S. federal tax reform and other potential changes in tax law and their impact on us and our operations;

•legislative or regulatory changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance industry in particular;

•potential legal and regulatory claims, investigations, actions, audits or inquiries that could result in adverse judgements, settlements, fines or other reliefs that could require significant expenditures or have other negative effects on our business;

3

•uncertainty relating to the coronavirus (COVID-19) virus and its variants or the measures taken by governmental authorities and other third-parties to contain the spread of COVID-19, including their impact on the global economy, the U.S. housing, real estate, housing finance and mortgage insurance markets, and our business, operations and personnel;

•our ability to successfully execute and implement our capital plans, including our ability to access the equity, credit and reinsurance markets and to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators;

•lenders, the GSEs, or other market participants seeking alternatives to private mortgage insurance;

•our ability to implement our business strategy, including our ability to write mortgage insurance on high quality low down payment residential mortgage loans, implement successfully and on a timely basis, complex infrastructure, systems, procedures, and internal controls to support our business and regulatory and reporting requirements of the insurance industry;

•our ability to attract and retain a diverse customer base, including the largest mortgage originators;

•failure of risk management or pricing or investment strategies;

•decrease in the length of time our insurance policies are in force;

•emergence of unexpected claim and coverage issues, including claims exceeding our reserves or amounts we had expected to experience;

•potential adverse impacts arising from natural disasters including, with respect to affected areas, a decline in new business, adverse effects on home prices, and an increase in notices of default on insured mortgages;

•climate risk and efforts to manage or regulate climate risk by government agencies could affect our business and operations;

•potential adverse impacts arising from the occurrence of any man-made disasters or public health emergencies, including pandemics;

•the inability of our counter-parties, including third-party reinsurers, to meet their obligations to us;

•failure to maintain, improve and continue to develop necessary information technology (IT) systems or the failure of technology providers to perform;

•effectiveness and security of our information technology systems and digital products and services, including the risks these systems, products or services may fail to operate as expected or planned, or expose us to cybersecurity or third-party risks (including exposure of our confidential customer and other confidential information); and

•ability to recruit, train and retain key personnel.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report on Form 10-Q, including the exhibits hereto. In addition, for additional discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner, you should review Risk Factors in Part II, Item 1A of this Report and in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 10-K), as subsequently updated in other reports we file from time to time with the U.S. Securities and Exchange Commission (SEC).

Unless expressly indicated or the context requires otherwise, the terms "we," "our," "us," "Company" and "NMI" in this document refer to NMI Holdings, Inc., a Delaware corporation, and its wholly-owned subsidiaries on a consolidated basis.

4

PART I

Item 1. Financial Statements

INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	6
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	7
Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended September 30, 2023 and 2022 (Unaudited)	8
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)	10
Notes to Condensed Consolidated Financial Statements (Unaudited)	11

5

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30, 2023		December 31, 2022
Assets	(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $2,462,778 and $2,352,747 as of September 30, 2023 and December 31, 2022, respectively)	$	2,197,686	$	2,099,389
Cash and cash equivalents (including restricted cash of $2,251 and $2,176 as of September 30, 2023 and December 31, 2022, respectively)	176,463		44,426
Premiums receivable	73,381		69,680
Accrued investment income	17,972		14,144
Deferred policy acquisition costs, net	62,195		58,564
Software and equipment, net	31,991		31,930
Intangible assets and goodwill	3,634		3,634
Reinsurance recoverable	25,956		21,587
Prepaid federal income taxes	154,409		154,409
Other assets	18,344		18,267
Total assets	$	2,762,031	$	2,516,030
Liabilities
Debt	$	397,198	$	396,051
Unearned premiums	98,211		123,035
Accounts payable and accrued expenses	88,629		74,576
Reserve for insurance claims and claim expenses	116,078		99,836
Reinsurance funds withheld	1,947		2,674
Deferred tax liability, net	257,163		193,859
Other liabilities	11,844		12,272
Total liabilities	971,070		902,303
Commitments and contingencies
Shareholders' equity
Common stock - class A shares, $0.01 par value; 86,940,460 shares issued and 81,630,452 shares outstanding as of September 30, 2023 and 86,472,742 shares issued and 83,549,879 shares outstanding as of December 31, 2022 (250,000,000 shares authorized)	870		865
Additional paid-in capital	981,044		972,717
Treasury Stock, at cost: 5,310,008 and 2,922,863 common shares as of September 30, 2023 and December 31, 2022, respectively	(117,116)		(56,575)
Accumulated other comprehensive loss, net of tax	(213,577)		(204,323)
Retained earnings	1,139,740		901,043
Total shareholders' equity	1,790,961		1,613,727
Total liabilities and shareholders' equity	$	2,762,031	$	2,516,030

See accompanying notes to condensed consolidated financial statements (unaudited).

6

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
	(In Thousands, except for per share data)
Revenues
Net premiums earned	$	130,089	$	118,317	$	377,828	$	355,682
Net investment income	17,853		11,945		49,265		33,065
Net realized investment gains (losses)	—		14		(33)		475
Other revenues	217		301		563		1,016
Total revenues	148,159		130,577		427,623		390,238
Expenses
Insurance claims and claim expenses (benefits)	4,812		(3,389)		14,386		(7,044)
Underwriting and operating expenses	27,749		27,144		80,983		90,779
Service expenses	239		197		586		963
Interest expense	8,059		8,036		24,146		24,128
Gain from change in fair value of warrant liability	—		—		—		(1,113)
Total expenses	40,859		31,988		120,101		107,713
Income before income taxes	107,300		98,589		307,522		282,525
Income tax expense	23,345		21,751		68,825		62,563
Net income	$	83,955	$	76,838	$	238,697	$	219,962
Earnings per share
Basic	$	1.02	$	0.91	$	2.88	$	2.58
Diluted	$	1.00	$	0.90	$	2.83	$	2.53
Weighted average common shares outstanding
Basic	82,096		84,444		82,879		85,369
Diluted	83,670		85,485		84,236		86,420
Net income	$	83,955	$	76,838	$	238,697	$	219,962
Other comprehensive loss, net of tax:
Unrealized losses in accumulated other comprehensive loss, net of tax benefit of $6,980 and $15,932 for the three months ended September 30, 2023 and 2022, and $2,467 and $59,112 for the nine months ended September 30, 2023 and 2022, respectively	(26,257)		(59,936)		(9,280)		(222,374)
Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $0 and $3 for the three months ended September 30, 2023 and 2022, and $(7) and $100 for the nine months ended September 30, 2023 and 2022, respectively	—		(10)		26		(377)
Other comprehensive loss, net of tax	(26,257)		(59,946)		(9,254)		(222,751)
Comprehensive income (loss)	$	57,698	$	16,892	$	229,443	$	(2,789)

See accompanying notes to condensed consolidated financial statements (unaudited).

7

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

	Common Stock - Class A			Additional Paid-in Capital		Treasury Stock, At Cost		Accumulated Other Comprehensive Loss		Retained Earnings		Total
	Shares	Amount
	(In Thousands)
Balances, December 31, 2022	83,550	$	865	$	972,717	$	(56,575)	$	(204,323)	$	901,043	$	1,613,727
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	396	4		(2,610)		—		—		—		(2,606)
Repurchase of common stock	(666)	—		—		(14,862)		—		—		(14,862)
Share-based compensation expense	—	—		3,492		—		—		—		3,492
Change in unrealized investment gains/losses, net of tax expense of $8,640	—	—		—		—		32,502				32,502
Net income	—	—		—		—		—		74,458		74,458
Balances, March 31, 2023	83,280	$	869	$	973,599	$	(71,437)	$	(171,821)	$	975,501	$	1,706,711
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	56	1		20		—		—		—		21
Repurchase of common stock	(1,046)	—		—		(26,238)		—		—		(26,238)
Share-based compensation expense	—	—		3,676		—		—		—		3,676
Change in unrealized investment gains/losses, net of tax benefit of $4,120	—	—		—		—		(15,499)		—		(15,499)
Net income	—	—		—		—		—		80,284		80,284
Balances, June 30, 2023	82,290	$	870	$	977,295	$	(97,675)	$	(187,320)	$	1,055,785	$	1,748,955
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	15	*		9		—		—		—		9
Repurchase of common stock	(675)	—		—		(19,441)		—		—		(19,441)
Share-based compensation expense	—	—		3,740		—		—		—		3,740
Change in unrealized investment gains/losses, net of tax benefit of $6,980	—	—		—		—		(26,257)		—		(26,257)
Net income	—	—		—		—		—		83,955		83,955
Balances, September 30, 2023	81,630	$	870	$	981,044	$	(117,116)	$	(213,577)	$	1,139,740	$	1,790,961

*    During the three months ended September 30, 2023, we issued 15,430 common shares with a par value of $0.01 in connection with the exercise of options and vesting of restricted stock units granted under our stock plans, which is not identifiable in this schedule due to rounding.

See accompanying notes to condensed consolidated financial statements (unaudited).

8

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

	Common Stock - Class A			Additional Paid-in Capital		Treasury Stock, At Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
	Shares	Amount
	(In Thousands)
Balances, December 31, 2021	85,793	$	858	$	955,302	$	—	$	1,485	$	608,141	$	1,565,786
Common stock: class A shares issued related to warrant exercises	51	1		1,143		—		—		—		1,144
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	430	4		26		—		—		—		30
Repurchase of common stock	(235)	—		—		(5,000)						(5,000)
Share-based compensation expense	—	—		4,196		—		—		—		4,196
Change in unrealized investment gains/losses, net of tax benefit of $26,262	—	—		—		—		(98,794)		—		(98,794)
Net income	—	—		—		—		—		67,680		67,680
Balances, March 31, 2022	86,039	$	863	$	960,667	$	(5,000)	$	(97,309)	$	675,821	$	1,535,042
Common stock: class A shares issued related to warrant exercises	33	*		624		—		—		—		624
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	68	1		(504)		—		—		—		(503)
Repurchase of common stock	(1,439)	—		—		(25,371)		—		—		(25,371)
Share-based compensation expense	—	—		3,867		—		—		—		3,867
Change in unrealized investment gains/losses, net of tax benefit of $17,015	—	—		—		—		(64,011)		—		(64,011)
Net income	—	—		—		—		—		75,444		75,444
Balances, June 30, 2022	84,701	$	864	$	964,654	$	(30,371)	$	(161,320)	$	751,265	$	1,525,092
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes	89	1		823		—		—		—		824
Repurchase of common stock	(994)	—		—		(20,824)		—		—		(20,824)
Share-based compensation expense	—	—		3,882		—		—		—		3,882
Change in unrealized investment gains/losses, net of tax benefit of $15,935	—	—		—		—		(59,946)		—		(59,946)
Net income	—	—		—		—		—		76,838		76,838
Balances, September 30, 2022	83,796	$	865	$	969,359	$	(51,195)	$	(221,266)	$	828,103	$	1,525,866

*    During the three months ended June 30, 2022, we issued 32,659 common shares with a par value of $0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

See accompanying notes to condensed consolidated financial statements (unaudited).

9

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the nine months ended September 30,
	2023		2022
Cash flows from operating activities	(In Thousands)
Net income	$	238,697	$	219,962
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment loss (gains)	33		(475)
Gain from change in fair value of warrant liability	—		(1,113)
Depreciation and amortization	8,516		8,976
Net (accretion)/amortization of (discount)/premium on investment securities	(55)		4,864
Amortization of debt discount and debt issuance costs	1,460		1,374
Deferred income taxes	65,764		61,647
Share-based compensation expense	10,908		11,945
Changes in operating assets and liabilities:
Premiums receivable	(3,701)		(6,844)
Accrued investment income	(3,828)		(1,442)
Deferred policy acquisition costs, net	(3,631)		101
Reinsurance recoverable	(4,369)		565
Other assets (1)	(1,092)		(315)
Unearned premiums	(24,824)		(8,585)
Reserve for insurance claims and claim expenses	16,242		(8,607)
Reinsurance balances, net	(432)		(1,067)
Accounts payable and accrued expenses	12,878		617
Net cash provided by operating activities	312,566		281,603
Cash flows from investing activities
Purchase of short-term investments	(152,716)		(229,816)
Purchase of fixed-maturity investments, available-for-sale	(352,469)		(156,973)
Proceeds from maturity of short-term investments	289,920		129,570
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	105,256		82,865
Software and equipment	(7,899)		(7,757)
Net cash used in investing activities	(117,908)		(182,111)
Cash flows from financing activities
Proceeds from issuance of common stock related to employee equity plans	2,872		5,392
Proceeds from issuance of common stock related to warrant exercises	—		518
Taxes paid related to net share settlement of equity awards	(5,448)		(5,041)
Repurchases of common stock	(60,045)		(51,195)
Net cash used in financing activities	(62,621)		(50,326)
Net increase in cash, cash equivalents and restricted cash	132,037		49,166
Cash, cash equivalents and restricted cash, beginning of period	44,426		76,646
Cash, cash equivalents and restricted cash, end of period	$	176,463	$	125,812
Supplemental disclosures of cash flow information
Interest paid	$	14,750	$	14,750
Income taxes paid	21		—

(1)    "Prepaid expenses" have been reclassified as "Other assets" in prior periods.

See accompanying notes to condensed consolidated financial statements (unaudited).

10

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization, Basis of Presentation and Summary of Accounting Principles

NMI Holdings, Inc. (NMIH) is a Delaware corporation, incorporated in May 2011 to provide private mortgage guaranty insurance (which we refer to as mortgage insurance or MI) through its wholly-owned insurance subsidiaries, National Mortgage Insurance Corporation (NMIC) and National Mortgage Reinsurance Inc One (Re One). Our common stock is listed on the Nasdaq exchange under the ticker symbol "NMIH."

NMIC, our primary insurance subsidiary, issued its first mortgage insurance policy in April 2013. NMIC is licensed to write mortgage insurance in all 50 states and the District of Columbia (D.C.). Re One historically provided reinsurance coverage to NMIC in accordance with certain statutory risk retention requirements. Such requirements have been repealed and the reinsurance coverage provided by Re One to NMIC has been commuted. Re One remains a wholly-owned, licensed insurance subsidiary; however, it does not currently have active insurance exposures. In August 2015, NMIH capitalized a wholly-owned subsidiary, NMI Services, Inc. (NMIS), through which we offer outsourced loan review services to mortgage loan originators.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which include the results of NMIH and its wholly-owned subsidiaries, have been prepared in accordance with the instructions to Form 10-Q as prescribed by the SEC for interim reporting and include other information and disclosures required by accounting principles generally accepted in the U.S. (GAAP). Our accounts are maintained in U.S. dollars. These statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2022, included in our 2022 10-K. All intercompany transactions have been eliminated. Certain reclassifications to previously reported financial information have been made to conform to our current period presentation. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as of the balance sheet date. Estimates also affect the reported amounts of income and expenses for the reporting period. Actual results could differ from those estimates. The results of operations for the interim period may not be indicative of the results that may be expected for the full year ending December 31, 2023.

Significant Accounting Principles

There have been no changes to our significant accounting principles as described in Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles" of our 2022 10-K, except as noted in "Recent Accounting Pronouncements - Adopted" below.

Recent Accounting Pronouncements - Adopted

In August 2018, the Financial Accounting Standards Board (the FASB) issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944). The update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The FASB subsequently issued ASU 2019-09 in November 2019 and ASU 2020-11 in November 2020, which amended the effective date for this standard and provided transition relief to facilitate early application for long duration contracts. The standard will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. We adopted this ASU on January 1, 2023 and determined it did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The update provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued during a transition period from 2021 through 2023. The ASU includes optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur. In December 2022, the FASB issued ASU 2022-06, which extended the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The adoption of ASU 2020-04 and ASU 2022-06 did not have a material impact on our consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2. Investments

We hold all investments on an available-for-sale basis at fair value on our condensed consolidated balance sheets and evaluate each position quarterly for impairment. We recognize an impairment on a security through the statement of operations if (i) we intend to sell the impaired security; or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis. If a sale is intended or likely to be required, we recognize an impairment loss equivalent to the difference of the amortized cost basis of the security and its fair value through the condensed consolidated statement of operations and comprehensive income as a "Net Realized Investment Loss." In the event of an impairment of a security that we intend to and have the ability to hold to maturity, we evaluate the drivers of the impairment to determine the portion that is credit related and the portion that is non-credit related. The portion of impairment loss that is attributed to credit related factors is recognized through the statement of operations as a provision for credit loss and the portion that is attributed to non-credit related factors is recognized in other comprehensive income, net of taxes.

Fair Values and Gross Unrealized Gains and Losses on Investments

	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
As of September 30, 2023	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	82,373	$	—	$	(2,201)	$	80,172
Municipal debt securities	676,519		—		(79,448)		597,071
Corporate debt securities	1,595,468		97		(178,459)		1,417,106
Asset-backed securities	67,820		—		(5,064)		62,756
Total bonds	2,422,180		97		(265,172)		2,157,105
Short-term investments	40,598		1		(18)		40,581
Total investments	$	2,462,778	$	98	$	(265,190)	$	2,197,686

	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
As of December 31, 2022	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	82,301	$	—	$	(2,369)	$	79,932
Municipal debt securities	563,972		—		(80,796)		483,176
Corporate debt securities	1,457,589		1,149		(165,096)		1,293,642
Asset-backed securities	74,762		—		(6,204)		68,558
Total bonds	2,178,624		1,149		(254,465)		1,925,308
Short-term investments	174,123		185		(227)		174,081
Total investments	$	2,352,747	$	1,334	$	(254,692)	$	2,099,389

We did not own any mortgage-backed securities in our asset-backed securities portfolio at September 30, 2023 or December 31, 2022.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of September 30, 2023 and December 31, 2022:

	September 30, 2023		December 31, 2022
Financial	34	%	38	%
Consumer	27		24
Utilities	13		11
Communications	9		11
Industrial	9		8
Technology	8		8
Total	100	%	100	%

As of September 30, 2023 and December 31, 2022, approximately $5.1 million and $5.4 million, respectively, of our cash and investments were held in the form of U.S. Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements.

Scheduled Maturities

The amortized cost and fair value of available-for-sale securities as of September 30, 2023 and December 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most asset-backed securities provide for periodic payments throughout their lives, they are listed below in a separate category.

As of September 30, 2023	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	211,754	$	209,298
Due after one through five years	1,111,356		1,008,847
Due after five through ten years	1,040,729		887,169
Due after ten years	31,119		29,616
Asset-backed securities	67,820		62,756
Total investments	$	2,462,778	$	2,197,686

As of December 31, 2022	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	271,613	$	270,428
Due after one through five years	935,615		862,747
Due after five through ten years	1,047,461		875,947
Due after ten years	23,296		21,709
Asset-backed securities	74,762		68,558
Total investments	$	2,352,747	$	2,099,389

Aging of Unrealized Losses

As of September 30, 2023, the investment portfolio had gross unrealized losses of $265.2 million, of which $250.1 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer. As of December 31, 2022, the investment portfolio had gross unrealized losses of $254.7 million, of which $218.5 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer. For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	Less Than Twelve Months					Twelve Months or Greater					Total
	# of Securities	Fair Value		Unrealized Losses		# of Securities	Fair Value		Unrealized Losses		# of Securities	Fair Value		Unrealized Losses
As of September 30, 2023		($ In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	9	$	4,962	$	(224)	18	$	75,210	$	(1,977)	27	$	80,172	$	(2,201)
Municipal debt securities	28	133,262		(4,594)		223	457,059		(74,854)		251	590,321		(79,448)
Corporate debt securities	51	286,184		(10,281)		271	1,119,098		(168,178)		322	1,405,282		(178,459)
Asset-backed securities	—	—		—		25	62,756		(5,064)		25	62,756		(5,064)
Short-term investments	2	27,772		(18)		—	—		—		2	27,772		(18)
Total	90	$	452,180	$	(15,117)	537	$	1,714,123	$	(250,073)	627	$	2,166,303	$	(265,190)

	Less Than Twelve Months					Twelve Months or Greater					Total
	# of Securities	Fair Value		Unrealized Losses		# of Securities	Fair Value		Unrealized Losses		# of Securities	Fair Value		Unrealized Losses
As of December 31, 2022		($ In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	19	$	77,164	$	(2,260)	4	$	2,768	$	(109)	23	$	79,932	$	(2,369)
Municipal debt securities	57	143,097		(12,942)		181	340,079		(67,854)		238	483,176		(80,796)
Corporate debt securities	141	434,174		(19,699)		168	790,537		(145,397)		309	1,224,711		(165,096)
Asset-backed securities	12	13,527		(1,097)		14	55,031		(5,107)		26	68,558		(6,204)
Short-term investments	12	104,236		(227)		—	—		—		12	104,236		(227)
Total	241	$	772,198	$	(36,225)	367	$	1,188,415	$	(218,467)	608	$	1,960,613	$	(254,692)

Allowance for Credit Losses

As of September 30, 2023 and December 31, 2022, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three or nine month periods ended September 30, 2023 or September 30, 2022.

We evaluated the securities in an unrealized loss position as of September 30, 2023, assessing their credit ratings as well as any adverse conditions specifically related to the security. Based upon our estimate of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of September 30, 2023 are not indicative of the ultimate collectability of the current amortized cost of the securities. Rather, the unrealized losses on securities held as of September 30, 2023 were primarily driven by fluctuations in interest rates, and to a lesser extent, movements in credit spreads following the purchase of those securities.

Net Investment Income

The following table presents the components of net investment income:

	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
	(In Thousands)
Investment income (1)	$	18,037	$	12,314	$	49,802	$	34,084
Investment expenses	(184)		(369)		(537)		(1,019)
Net investment income	$	17,853	$	11,945	$	49,265	$	33,065

(1)    Includes interest income recognized on cash and cash equivalents of $0.8 million and $1.4 million during the three and nine months ended September 30, 2023, respectively, and $0.1 million and $0.2 million during the three and nine months ended September 30, 2022, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the components of net realized investment gains (losses):

	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
	(In Thousands)
Gross realized investment gains	$	—	$	24	$	—	$	490
Gross realized investment losses	—		(10)		(33)		(15)
Net realized investment gains (losses)	$	—	$	14	$	(33)	$	475

3. Fair Value of Financial Instruments

The following describes the valuation techniques used by us to determine the fair value of our financial instruments:

We established a fair value hierarchy by prioritizing the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this standard are described below:

Level 1 - Fair value measurements based on quoted prices in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.

Level 2 - Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 - Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions, which require significant management judgment or estimation about the inputs a hypothetical market participant would use to value that asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Assets Classified as Level 1 and Level 2

To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. We have not made any adjustments to the prices obtained from the independent pricing sources.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following tables present the level within the fair value hierarchy at which our financial instruments were measured:

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
As of September 30, 2023	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	80,172	$	—	$	—	$	80,172
Municipal debt securities	—		597,071		—		597,071
Corporate debt securities	—		1,417,106		—		1,417,106
Asset-backed securities	—		62,756		—		62,756
Cash, cash equivalents and short-term investments	217,044		—		—		217,044
Total assets	$	297,216	$	2,076,933	$	—	$	2,374,149

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
As of December 31, 2022	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	79,932	$	—	$	—	$	79,932
Municipal debt securities	—		483,176		—		483,176
Corporate debt securities	—		1,293,642		—		1,293,642
Asset-backed securities	—		68,558		—		68,558
Cash, cash equivalents and short-term investments	218,507		—		—		218,507
Total assets	$	298,439	$	1,845,376	$	—	$	2,143,815

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the nine months ended September 30, 2023, or the year ended December 31, 2022.

Financial Instruments Not Measured at Fair Value

On June 19, 2020, we issued $400 million aggregate principal amount of senior secured notes that mature on June 1, 2025 (the Notes) and used a portion of the proceeds from the Notes offering to repay amounts due under our then outstanding $150 million term loan. At September 30, 2023, the Notes were carried at a cost of $397.2 million, net of unamortized debt issuance costs of $2.8 million, and had a fair value of $399.7 million as assessed under our Level 2 hierarchy. At December 31, 2022, the Notes were carried at a cost of $396.1 million, net of unamortized debt issuance costs of $3.9 million, and had a fair value of $405.9 million.

4. Debt

Senior Secured Notes

At September 30, 2023, we had $400 million aggregate principal amount of senior secured notes outstanding. The Notes were issued pursuant to an indenture dated June 19, 2020 and bear interest at a rate of 7.375%, payable semi-annually on June 1 and December 1.

The Notes mature on June 1, 2025. At any time, or from time to time, prior to March 1, 2025, we may elect to redeem the Notes in whole or in part at a price based on 100% of the aggregate principal amount of any Notes redeemed plus the "Applicable Premium," plus accrued and unpaid interest thereon. Applicable Premium is defined as the greater of (1) 1.0% of the principal amount of the Notes, or (2) the excess of the present value of the principal value of the Notes plus all future interest payments

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

over the principal amount. At any time on or after March 1, 2025, we may elect to redeem the Notes in whole or in part at a price equal to 100% of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest thereon.

Interest expense for the Notes includes interest and the amortization of capitalized debt issuance costs. In connection with the Notes offering, we recorded capitalized debt issuance costs of $7.4 million. Such amounts will be amortized over the contractual life of the Notes using the effective interest method. The effective interest rate on the Notes is 7.825%. At September 30, 2023 and December 31, 2022, approximately $2.8 million and $3.9 million, respectively, of unamortized debt issuance costs remained.

At September 30, 2023 and December 31, 2022, $9.8 million and $2.5 million, respectively, of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on the condensed consolidated balance sheets.

    2021 Revolving Credit Facility

On November 29, 2021, we amended our $110 million senior secured revolving credit facility (the 2020 Revolving Credit Facility and as amended, the 2021 Revolving Credit Facility), expanding the lender group, increasing the revolving capacity to $250 million, and extending the maturity from February 22, 2023 to the earlier of (x) November 29, 2025, or (y) if any existing senior secured notes remain outstanding on such date, February 28, 2025. Borrowings under the 2021 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, (i) a Base Rate (as defined in the 2021 Revolving Credit Facility) subject to a floor of 1.00% per annum) plus a margin of 0.375% to 1.875% per annum, or (ii) the Adjusted Term SOFR (as defined in the 2021 Revolving Credit Facility) plus a margin of 1.375% to 2.875% per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time. As of September 30, 2023 and December 31, 2022, no amounts were drawn under the 2021 Revolving Credit Facility.

Under the 2021 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175% to 0.525%, based on the applicable corporate credit rating at the time. As of September 30, 2023, the applicable commitment fee was 0.30%. For the three and nine months ended September 30, 2023, we recorded $0.2 million and $0.6 million of commitment fees in interest expense, respectively.

We incurred debt issuance costs of $1.1 million in connection with the 2021 Revolving Credit Facility and had $0.6 million of unamortized debt issuance costs associated with the 2020 Revolving Credit Facility remaining at the time of its amendment and replacement. Combined unamortized debt issuance costs are amortized through interest expense on a straight-line basis over the contractual life of the 2021 Revolving Credit Facility. At September 30, 2023 and December 31, 2022, remaining unamortized deferred debt issuance costs were $0.9 million and $1.2 million, respectively.

We are subject to certain covenants under the 2021 Revolving Credit Facility, including, but not limited to, the following: a maximum debt-to-total capitalization ratio of 35%, compliance with the private mortgage insurer eligibility requirements (PMIERs) financial requirements (subject to any GSE approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein). We were in compliance with all covenants at September 30, 2023.

5. Reinsurance

We enter into third-party reinsurance transactions to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements, (respectively, as defined therein), and support the growth of our business. The Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) has approved and the GSEs have indicated their non-objection to all such transactions (subject to certain conditions and ongoing review, including levels of approved capital credit).

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The effect of our reinsurance agreements on premiums written and earned is as follows:

	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
	(In Thousands)
Net premiums written
Direct	$	157,956	$	147,192	$	458,880	$	429,715
Ceded (1)	(34,688)		(33,646)		(105,492)		(81,678)
Net premiums written	$	123,268	$	113,546	$	353,388	$	348,037
Net premiums earned
Direct	$	164,813	$	152,221	$	483,705	$	438,299
Ceded (1)	(34,724)		(33,904)		(105,877)		(82,617)
Net premiums earned	$	130,089	$	118,317	$	377,828	$	355,682

(1)    Net of profit commission.

Excess-of-loss Reinsurance

Insurance-linked Notes

NMIC is a party to reinsurance agreements with Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re V Ltd., Oaktown Re VI Ltd., and Oaktown Re VII Ltd. (special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective July 25, 2018, July 30, 2019, October 29, 2020, April 27, 2021, and October 26, 2021, respectively. Each agreement provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount. NMIC then retains losses in excess of the respective reinsurance coverage amounts.

NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays an additional amount for anticipated operating expenses (capped at $250 thousand per year). NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $6.9 million and $24.8 million during the three and nine months ended September 30, 2023, respectively, and $10.7 million and $31.8 million during the three and nine months ended September 30, 2022, respectively.

NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under each excess-of-loss agreement. NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and nine months ended September 30, 2023 and 2022, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

Under the terms of each excess-of-loss reinsurance agreement, the Oaktown Re Vehicles are required to fully collateralize their outstanding reinsurance coverage amount to NMIC with funds deposited into segregated reinsurance trusts. Such trust funds are required to be invested in short-term U.S. Treasury money market funds at all times. Each Oaktown Re Vehicle financed its respective collateral requirement through the issuance of mortgage insurance-linked notes to unaffiliated investors. Such insurance-linked notes mature ten years from the inception date of each reinsurance agreement (except the notes issued by Oaktown Re VI Ltd. and Oaktown Re VII Ltd., which have a 12.5-year maturity). We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Vehicles individually as the 2018 ILN Transaction, 2019 ILN Transaction, 2020-2 ILN Transaction, 2021-1 ILN Transaction, and 2021-2 ILN Transaction, and collectively as the ILN Transactions.

The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease over a ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled (except the coverage provided by Oaktown Re VI Ltd. and Oaktown Re VII Ltd., which decreases over a 12.5-year period). As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction noteholders as amortization of the outstanding insurance-linked note principal balances. The outstanding reinsurance coverage amounts stop amortizing, and the distribution of collateral assets to ILN Transaction noteholders and amortization of

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event).

NMIC holds optional termination rights under each ILN Transaction, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under a given agreement. In addition, there are certain events that trigger mandatory termination of an agreement, including NMIC's failure to pay premiums or consent to reductions in a trust account to make principal payments to noteholders, among others.

Effective July 25, 2023, NMIC exercised its optional call to terminate the 2018 ILN Transaction. In connection with the termination of the transaction, NMIC’s excess of loss reinsurance agreement with Oaktown Re II Ltd. was commuted and the insurance-linked notes issued by Oaktown Re II Ltd. were redeemed in full with a distribution of remaining collateral assets.

The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each outstanding ILN Transaction. Current amounts are presented as of September 30, 2023.

($ values in thousands)	Inception Date	Covered Production	Initial Reinsurance Coverage		Current Reinsurance Coverage		Initial First Layer Retained Loss		Current First Layer Retained Loss (1)
2019 ILN Transaction	July 30, 2019	6/1/2018 – 6/30/2019	$	326,905	$	163,190	$	123,424	$	121,870
2020-2 ILN Transaction	October 29, 2020	4/1/2020 – 9/30/2020 (2)	242,351		64,181		121,777		121,177
2021-1 ILN Transaction	April 27, 2021	10/1/2020 – 3/31/2021 (3)	367,238		235,584		163,708		163,478
2021-2 ILN Transaction	October 26, 2021	4/1/2021 – 9/30/2021 (4)	363,596		328,555		146,229		145,984

(1)    NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claim expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claim expenses exceed its current first layer retained loss.

(2)    Approximately 1% of the production covered by the 2020-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2020.

(3)    Approximately 1% of the production covered by the 2021-1 ILN Transaction has coverage reporting dates between July 1, 2019 and September 30, 2020.

(4)    Approximately 2% of the production covered by the 2021-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2021.

Under the terms of our ILN Transactions, we are required to maintain a certain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the respective notes have been redeemed in full. "Cash and cash equivalents" on our condensed consolidated balance sheets includes restricted amounts of $2.3 million and $2.2 million as of September 30, 2023 and December 31, 2022, respectively. The restricted balances required under these transactions will decline over time as the outstanding principal balance of the respective insurance-linked notes are amortized.

Traditional Reinsurance

NMIC is a party to five excess-of-loss reinsurance agreements with broad panels of third-party reinsurers – the 2022-1 XOL Transaction, effective April 1, 2022, the 2022-2 XOL Transaction, effective July 1, 2022, the 2022-3 XOL Transaction, effective October 1, 2022, the 2023-1 XOL Transaction, effective January 1, 2023, and the 2023-2 XOL Transaction, effective July 1, 2023 – which we refer to collectively as the XOL Transactions. Each XOL Transaction provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies. Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the reinsurers then provide second layer loss protection up to a defined reinsurance coverage amount. The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from its peak over a ten-year period in the event the PMIERs minimum required assets of the pool declines. NMIC retains losses in excess of the outstanding reinsurance coverage amount.

Under the terms of the XOL Transactions, NMIC makes risk premium payments to its third-party reinsurance providers for the outstanding reinsurance coverage amount and ceded aggregate premiums of $8.0 million and $22.9 million during the three and nine months ended September 30, 2023, respectively, and $4.8 million and $7.7 million during the three and nine months ended September 30, 2022, respectively. NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under each agreement. NMIC did not cede any incurred losses on covered policies under the XOL Transactions during the three and nine months ended September 30, 2023, as the aggregate first layer risk retention for each

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agreement was not exhausted during the period.

NMIC holds optional termination rights which provide it the discretion to terminate each XOL Transaction on or after a specified date. NMIC may also elect to terminate the XOL Transactions at any point if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount provided at inception, or if it determines that it will no longer be able to take full PMIERs asset credit for the coverage. Additionally, under the terms of the treaties, NMIC may selectively terminate its engagement with individual reinsurers under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold, and/or a reinsurer breaches (and fails to cure) its collateral posting obligation.

Each of the third-party reinsurance providers that is party to the XOL Transactions has an insurer financial strength rating of A- or better by Standard & Poor’s Rating Service (S&P), A.M. Best Company Inc. (A.M. Best) or both.

The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each outstanding XOL Transaction. Current amounts are presented as of September 30, 2023.

($ values in thousands)	Inception Date	Covered Production	Initial Reinsurance Coverage	Current Reinsurance Coverage	Initial First Layer Retained Loss	Current First Layer Retained Loss (1)
2022-1 XOL Transaction	April 1, 2022	10/1/2021 – 3/31/2022 (2)	$289,741	$274,934	$133,366	$133,238
2022-2 XOL Transaction	July 1, 2022	4/1/2022 – 6/30/2022 (3)	154,306	152,347	78,906	78,892
2022-3 XOL Transaction	October 1, 2022	7/1/2022 – 9/30/2022	96,779	96,197	106,265	106,265
2023-1 XOL Transaction	January 1, 2023	10/1/2022 – 6/30/2023	89,864	88,351	146,513	146,513
2023-2 XOL Transaction (4)	July 1, 2023	7/1/2023 – 12/31/2023	40,264	40,264	62,323	62,323

(1)    NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claim expenses to each applicable XOL Transaction and recognizes a reinsurance recoverable if such incurred claims and claim expenses exceed its current first layer retained loss.

(2)    Approximately 1% of the production covered by the 2022-1 XOL Transaction has coverage reporting dates between October 21, 2019 and September 30, 2021.

(3)    Approximately 1% of the production covered by the 2022-2 XOL Transaction has coverage reporting dates between January 4, 2021 and March 31, 2022.

(4)    The initial reinsurance coverage, current reinsurance coverage, initial first layer retained loss and current first layer retained loss for the 2023-2 XOL Transaction will increase as incremental covered production is ceded under the transaction through December 31, 2023.

Quota Share Reinsurance

NMIC is a party to seven quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020, the 2021 QSR Transaction, effective January 1, 2021, the 2022 QSR Transaction, effective October 1, 2021, the 2022 Seasoned QSR Transaction, effective July 1, 2022 and the 2023 QSR Transaction, effective January 1, 2023 – which we refer to collectively as the QSR Transactions. Under each of the QSR Transactions, NMIC cedes a proportional share of its risk on eligible policies to panels of third-party reinsurance providers. Each of the third-party reinsurance providers that is party to the QSR Transactions has an insurer financial strength rating of A- or better by S&P, A.M. Best or both.

Under the terms of the 2016 QSR Transaction, NMIC cedes premiums written related to 25% of the risk on eligible primary policies written for all periods through December 31, 2017 and 100% of the risk under our pool agreement with Fannie Mae. The 2016 QSR Transaction is scheduled to terminate on December 31, 2027, except with respect to the ceded pool risk, which expired on August 31, 2023. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2020, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.

Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019. The 2018 QSR Transaction is scheduled to terminate on December 31, 2029. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2022, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.

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Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 to December 31, 2020. The 2020 QSR Transaction is scheduled to terminate on December 31, 2030. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2023, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.

Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written from January 1, 2021 to October 30, 2021. The 2021 QSR Transaction is scheduled to terminate on December 31, 2031. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2024, or at the end of any calendar quarter thereafter, which would result in NMIC recapturing the related risk.

Under the terms of the 2022 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written primarily between October 30, 2021 and December 31, 2022. The 2022 QSR Transaction is scheduled to terminate on December 31, 2032. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2024 or semi-annually thereafter, which would result in NMIC recapturing the related risk.

In connection with the 2022 QSR Transaction, NMIC entered into the 2023 QSR Transaction as a springing back-to-back quota share agreement. Under the terms of the 2023 QSR Transaction, NMIC cedes premiums earned related to 20% of the risk on eligible policies written from January 1, 2023 to December 31, 2023. The 2023 QSR Transaction is scheduled to terminate on December 31, 2033. NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2025 or semi-annually thereafter, which would result in NMIC recapturing the related risk.

Under the terms of the 2022 Seasoned QSR Transaction, NMIC cedes premiums earned related to 95% of the net risk on eligible policies primarily for a seasoned pool of mortgage insurance policies that had previously been covered under the retired Oaktown Re Ltd. and Oaktown Re IV Ltd. reinsurance transactions, after the consideration of coverage provided by other QSR Transactions. The 2022 Seasoned QSR Transaction is scheduled to terminate on June 30, 2032. NMIC has the option, based on certain conditions, to terminate the agreement as of June 30, 2025 or quarterly thereafter through December 31, 2027 with the payment of a termination fee, and as of March 31, 2028 or quarterly thereafter without the payment of a termination fee. Such termination would result in NMIC recapturing the related risk.

NMIC may terminate any or all of the QSR Transactions without penalty if, due to a change in PMIERs requirements, it is no longer able to take full PMIERs asset credit for the risk-in-force (RIF) ceded under the respective agreements. Additionally, under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis (i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis (i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances. Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement.

Effective April 1, 2019, NMIC elected to terminate its engagement with one reinsurer under the 2016 QSR Transaction on a cut-off basis. In connection with the termination, NMIC recaptured approximately $500 million of previously ceded primary RIF and stopped ceding new premiums earned or written with respect to the recaptured risk. With the termination, ceded premiums written under the 2016 QSR Transaction decreased from 25% to 20.5% on eligible policies. The termination had no effect on the cession of pool risk under the 2016 QSR Transaction.

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The following table shows amounts related to the QSR Transactions:

	As of and for the three months ended				As of and for the nine months ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
	(In Thousands)
Ceded risk-in-force	$	12,753,261	$	12,511,797	$	12,753,261	$	12,511,797
Ceded premiums earned	(42,015)		(42,265)		(126,113)		(101,501)
Ceded claims and claim expenses (benefits)	2,221		248		4,989		(314)
Ceding commission earned	9,808		10,193		29,650		22,225
Profit commission	22,184		23,899		67,949		58,400

Ceded premiums written under the 2016 QSR Transaction are recorded on the balance sheet as prepaid reinsurance premiums and amortized to ceded premiums earned in a manner consistent with the recognition of revenue on direct premiums. Under all other QSR Transactions, premiums are ceded on an earned basis as defined in the agreement. NMIC receives a 20% ceding commission for premiums ceded under the QSR Transactions, except with respect to the 2022 Seasoned QSR Transaction under which it receives a 35% ceding commission. NMIC also receives a profit commission under each of the QSR Transactions, provided that the loss ratios on loans covered under the 2016, 2018, 2020, 2021, 2022, 2023 QSR and 2022 Seasoned QSR Transactions, generally remain below 60%, 61%, 50%, 57.5%, 62%, 62%, and 55% respectively, as measured annually. Ceded claims and claim expenses under each of the QSR Transactions reduce the respective profit commission received by NMIC on a dollar-for-dollar basis.

In accordance with the terms of the 2016 QSR Transaction, rather than making a cash payment or transferring investments for ceded premiums written, NMIC established a funds withheld liability, which also includes amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC will be realized from this account until exhausted. NMIC's reinsurance recoverable balance is further supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates. The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $2.2 million and $2.6 million as of September 30, 2023 and December 31, 2022, respectively.

In accordance with the terms of the 2018, 2020, 2021, 2022 and 2023 QSR and 2022 Seasoned QSR Transactions, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions. Any loss recoveries and any potential profit commission to NMIC are also recognized quarterly. NMIC's reinsurance recoverable balance is supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates. The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021, 2022, 2023 QSR and 2022 Seasoned QSR Transactions was $23.8 million and $19.0 million as of September 30, 2023 and December 31, 2022, respectively.

We remain directly liable for all claim payments if we are unable to collect reinsurance recoverable due from our reinsurers and, as such, we actively monitor and manage our counterparty credit exposure to our reinsurance providers. We establish an allowance for expected credit loss against our reinsurance recoverable if we do not expect to recover amounts due from one or more of our reinsurance counterparties, and report our reinsurance recoverable net of such allowance, if any. We actively monitor the counterparty credit profiles of our reinsurers and each is required to partially collateralize its obligations under the terms of our QSR Transactions. The allowance for credit loss established on our reinsurance recoverable was deemed immaterial at September 30, 2023 and December 31, 2022.

6. Reserves for Insurance Claims and Claim Expenses

We hold gross reserves in an amount equal to the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. A loan is considered to be in "default" as of the payment date at which a borrower has missed the preceding two or more consecutive monthly payments. We establish reserves for loans that have been reported to us in default by servicers, referred to as case reserves, and additional loans that we estimate (based on actuarial review and other factors) to be in default that have not yet been reported to us by servicers, referred to as incurred but not reported (IBNR) reserves. We also establish reserves for claim expenses, which represent the estimated cost of the claim administration process, including legal and other fees, as well as other general expenses of administering the claim settlement process. As of September 30, 2023, we held gross reserves for insurance claims and claim expenses of $116.1 million. During the nine months ended September 30, 2023, we paid 129 claims totaling $3.1 million, including 123 claims covered under the QSR Transactions representing $0.6 million of ceded claims and claim expenses.

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We had 4,594 loans in default in our primary insured portfolio as of September 30, 2023, which represented a 0.74% default rate against 622,993 total policies in-force and 4,449 loans in default in our primary portfolio as of December 31, 2022, which represented a 0.75% default rate against 594,142 total policies in-force. The size of the reserve we establish for each defaulted loan (and by extension our aggregate reserve for claims and claim expenses) reflects our best estimate of the future claim payment to be made for each individual loan in default. Our future claims exposure is a function of the number of defaulted loans that progress to claim payment (which we refer to as frequency) and the amount to be paid to settle such claims (which we refer to as severity). Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and assumptions about future macroeconomic factors.

The following table provides a reconciliation of the beginning and ending gross reserve balances for primary insurance claims and claim expenses (benefits):

	For the nine months ended September 30,
	2023		2022
	(In Thousands)
Beginning balance	$	99,836	$	103,551
Less reinsurance recoverables (1)	(21,587)		(20,320)
Beginning balance, net of reinsurance recoverables	78,249		83,231
Add claims incurred:
Claims and claim expenses (benefits) incurred:
Current year (2)	60,987		28,135
Prior years (3)	(46,601)		(35,179)
Total claims and claim expenses (benefits) incurred	14,386		(7,044)
Less claims paid:
Claims and claim expenses paid:
Current year (2)	119		73
Prior years (3)	2,394		925
Total claims and claim expenses paid	2,513		998
Reserve at end of period, net of reinsurance recoverables	90,122		75,189
Add reinsurance recoverables (1)	25,956		19,755
Ending balance	$	116,078	$	94,944

(1)    Related to ceded losses recoverable under the QSR Transactions. See Note 5, "Reinsurance" for additional information.

(2)    Related to insured loans with their most recent defaults occurring in the current year. For example, if a loan defaulted in a prior year and subsequently cured and later re-defaulted in the current year, the default would be included in the current year. Amounts are presented net of reinsurance and included $54.4 million attributed to net case reserves and $5.8 million attributed to net IBNR reserves for the nine months ended September 30, 2023 and $23.3 million attributed to net case reserves and $4.2 million attributed to net IBNR reserves for the nine months ended September 30, 2022.

(3)    Related to insured loans with defaults occurring in prior years, which have been continuously in default before the start of the current year. Amounts are presented net of reinsurance and included $41.1 million attributed to net case reserves and $4.5 million attributed to net IBNR reserves for the nine months ended September 30, 2023 and $29.2 million attributed to net case reserves and $4.7 million attributed to net IBNR reserves for the nine months ended September 30, 2022.

The "claims incurred" section of the table above shows claims and claim expenses (benefits) incurred on defaults occurring in current and prior years, including IBNR reserves, and is presented net of reinsurance. The amount of claims incurred relating to current year defaults increased during the nine months ended September 30, 2023, compared to the same period in the prior year, primarily driven by an increase in the average case reserve established against newly defaulted loans, as well as an increase in the total number of new delinquencies emerging during the period tied to the growth and natural seasoning of our portfolio. Our provision for claims and claim expenses during both the nine months ended September 30, 2023 and 2022 benefited from favorable development on prior year defaults. We recognized $46.6 million and $35.2 million of favorable prior year development during the nine months ended September 30, 2023 and 2022, respectively, primarily due to cure activity and ongoing analysis of recent loss development trends. We may increase or decrease our claim estimates and reserves as we learn

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additional information about individual defaulted loans, and continue to observe and analyze loss development trends in our portfolio. Gross reserves of $37.5 million related to prior year defaults remained as of September 30, 2023.

7. Earnings per Share (EPS)

Basic EPS is based on the weighted average number of shares of common stock outstanding. Diluted EPS is based on the weighted average number of shares of common stock outstanding and common stock equivalents that would be issuable upon the vesting of service-based and performance and service-based restricted stock units (RSUs), and the exercise of vested and unvested stock options and outstanding warrants. The number of shares issuable for RSUs subject to performance and service-based vesting requirements are only included in diluted shares if the relevant performance measurement period has commenced and results during such period meet the necessary performance criteria.

The following table reconciles the net income and the weighted average shares of common stock outstanding used in the computations of basic and diluted EPS of common stock:

	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
	(In Thousands, except for per share data)
Net income	$	83,955	$	76,838	$	238,697	$	219,962
Basic weighted average shares outstanding	82,096		84,444		82,879		85,369
Basic earnings per share	$	1.02	$	0.91	$	2.88	$	2.58
Net income	$	83,955	$	76,838	$	238,697	$	219,962
Gain from change in fair value of warrant liability	—		—		—		(1,113)
Diluted net income	$	83,955	$	76,838	$	238,697	$	218,849
Basic weighted average shares outstanding	82,096		84,444		82,879		85,369
Dilutive effect of issuable shares	1,574		1,041		1,357		1,051
Diluted weighted average shares outstanding	83,670		85,485		84,236		86,420
Diluted earnings per share	$	1.00	$	0.90	$	2.83	$	2.53
Anti-dilutive shares	1		30		2		30

8. Income Taxes

We are a U.S. taxpayer and are subject to a statutory U.S. federal corporate income tax rate of 21%. Taxable income is reported on our consolidated U.S. federal and various state income tax returns, filed by NMIH on behalf of itself and its subsidiaries. Our effective tax rate on our pre-tax income was 21.8% and 22.4% for the three and nine months ended September 30, 2023, respectively, compared to 22.1% for both the three and nine months ended September 30, 2022. Our provision for income taxes for interim reporting periods is established based on our estimated annual effective tax rate for a given year. Our effective tax rate may fluctuate between interim periods due to the impact of discrete items not included in our estimated annual effective tax rate, including the tax effects associated with the vesting of RSUs and exercise of options. Such items are treated on a discrete basis in the reporting period in which they occur.

As a mortgage guaranty insurance company, we are eligible to claim a tax deduction for our statutory contingency reserve balance, subject to certain limitations outlined under IRC Section 832(e), and only to the extent we acquire tax and loss bonds in an amount equal to the tax benefit derived from the claimed deduction, which is our intent. As a result, our interim provision for income taxes for the three and nine months ended September 30, 2023 primarily represents a change in our net deferred tax liability. As of September 30, 2023 and December 31, 2022, we held $154.4 million of tax and loss bonds in "Prepaid federal income taxes" on our condensed consolidated balance sheets.

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9. Stockholders' Equity

On February 10, 2022, our Board of Directors authorized a $125 million share repurchase program (excluding associated costs and applicable taxes) effective through December 31, 2023. On July 31, 2023, our Board of Directors authorized a new $200 million share repurchase program (excluding associated costs and applicable taxes) effective through December 31, 2025. Concurrent with the new authorization, our Board of Directors also approved an extension of our existing $125 million share repurchase program through December 31, 2025 to align its remaining tenor with that of the $200 million program. The authorization provides us the flexibility, based on market and business conditions, stock price and other factors, to repurchase stock from time to time through open market purchases, privately negotiated transactions, or other means, including pursuant to Rule 10b5-1 trading plans.

During the nine months ended September 30, 2023, we repurchased 2.4 million shares at an average price of $25.13 per share (excluding associated costs and applicable taxes). During the year ended December 31, 2022, we repurchased 2.9 million shares at an average price of $19.34 per share (excluding associated costs). As of September 30, 2023, we had $208.5 million of aggregate repurchase authority remaining.

10. Litigation

We record a litigation liability when we determine that it is probable a litigation loss will be incurred and the amount of such anticipated loss can be reason